Hello, icurious!
You are right that there is some uncertainty around how 529 and ESA distributions should be treated for purposes of the support test for form 8615.
Since the IRS has not issued clear guidance or any explicit rules on this specific issue, there is definitely room for reasonable interpretation on your part.
Many tax preparers feel a reasonable approach is to treat the distributions as parental support rather than student support, since the parents/guardians, own and control the 529/ESA accounts. This is reinforced by the notion that the parents ultimately retain control over the funds. Making the distribution checks payable to the parent or directly to the educational institution, rather than to the student beneficiary, would further demonstrate that the funds are indeed parental support.
Also, when referring to the support rules in Pub.501, p.16, worksheet 2 for determining expenses, it clearly states that Total Education Expenses are to be included in the calculation, as support from the person who paid it.
Lastly, I would suggest, that due to the fact there is ambiguity around whether these distributions should be considered support provided by the account owner or the student, a prudent approach would be to disclose the distributions and take a reasonable position until the IRS provides more definitive guidance.
For Additional Information on form 8615 see:
2024 Form 8615 Instructions
Pub 970 Tax Benefits for Education
Pub 501 Dependents, Standard Deduction, and Filing Information
Tax planning for parents of college students What is IRS Form 8615: Tax for Certain Children Who Have Unearned Income
Please feel free to reach back-out with any additional questions or concerns you might have!
I hope you have an amazing rest of your day and best of luck moving forward!
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Terri Lynn
